The Sony Corporation

1025

The Sony Corporation

Sony, which will be 60 years old in 2006, became renowned throughout the world as an innovatory, pioneering company
with an international presence and reputation in the consumer electronics industry. Sony is now an acknowledged leader
in a number of very competitive and dynamic industries where no single company enjoys a dominant market share. Sony
has always sought to develop unique products rather than copy other companies. Although profitable, profitability per se
has not been the driving objective. Sony has invested in research and development at a rate above the average both for its
industry and for Japan. Technologists are seen as a critically important resource and allowed freedom to work within rel-
atively open-ended briefs. However, the company has come under enormous pressure as it has struggled to remain a leader
in the changing world of consumer electronics and, as a result, there have been major changes in its strategies and struc- in the 1990s and
ture in the 1990s and again in the early 2000s. This case traces the growth, development, successes and setbacks of The
The Sony Corporation. It encapsulates issues of corporate and competitive strategies, structural evolution and the
the Japanese style of management. Sonys strategy of diversification into the American entertainment industry is
examined in detail.The case deliberately stops short before the Sony PlayStation was launched, taking Sony in a fresh
direction, and consequently does not deal with the subsequent growth of DVD technology.

This version of the case was written by John L Thompson in 1996. It is for classroom discussion and should not be
taken to reflect either effective or ineffective management.

Introduction History and product developments*

Sony was at a critical point in its development as a
global corporation as it celebrated its fiftieth birth-
day in . The success of recent strategic changes
is likely to have a major impact upon whether Sony
restores its lost prosperity or declines to become a
business legend.
The increasing significance of computers and com-
munications equipment in consumer electronics,
reinforced by the continuing convergence of com-
puting, telecommunications and electronic enter-
tainment in a range of new multimedia products,
has forced consumer electronics companies such as
Sony to focus their thinking and research on emerg-
ing technologies rather than concentrating on the
innovatory development of new product variants.
The conventional audiovisual products which have
been at the heart of Sonys growth and development
are now overshadowed by the latest developments in
multimedia technology. To compete effectively in the
late s, Sony realized that it had to transform
itself from a company which was dependent on the
analogue technologies of conventional audiovisual
products to one with competencies in digital tech-
nology which it could use to develop a range of new
products for the multimedia age.
Humble beginnings
Sony Corporation, begun in Japan after the end of
World War II, is much younger than its major
Japanese rivals. In years it has become estab-
lished as a market leader in the production of
specialist electronic products in an environment
of rapid technological change, economic growth
and a global willingness to accept new technology.
Sonys corporate history has been built around
core competencies in technological innovation and
miniaturization and the development of quality
products and quality systems which have led to high
levels of differentiation. Early growth was organic
and initially competition was limited. Todays com-
petitors have typically followed Sony into the markets
it pioneered. The successful targeting of innovators
and early adopters generated healthy profit margins
which were reinvested in the company, especially in
research and development (R&D).
*This section on the early history of Sony has been devel-
oped in part from The Sony Corporation case study ()
in Quinn, JB, Mintzberg, H and James, RM () The
Strategy Process: Concepts, Contexts and Cases, Prentice-Hall.
Other material has been obtained from a variety of news-
paper and journal articles.
 The Sony Corporation
1026
The founder of Sony was Masaru Ibuka, who
gathered together a group of engineers to develop
some sort of electronics laboratory or enterprise. He
had previously owned and managed a factory sup-
plying electronic instruments for the war effort, and
he was now keen to do something that no other
company had done before. In the s and s May , and valued at ,, which approxi-
Japanese companies were not perceived to be inno-
vators or leaders in technology, but rather business-
es which were very skilled at copying Western tech-
nology. From these humble beginnings, a truly inno-
vatory company with a worldwide reputation and
presence has emerged.
The new enterprise had little capital, a limited
track record and no definite ideas. Essentially, the
managers just had aspirations to apply the knowl-
edge of the founder in the development of consumer
products. Ibukas first invention for the consumer
market was an electric rice cooker manufactured
from aluminium. It failed to sell. The electric
element burnt the rice at the bottom of the pot
while failing to cook the rice at the top.
To generate a stronger cash flow to fund further
developments the company started repairing and
modifying wartime radio sets. The company was
already earning revenue from electronic instruments
such as voltmeters which were still being manufac-
tured and sold to the new peacetime markets.
From the beginning Sony developed as an inde-
pendent company; it was not a member of a
Japanese keiretsu or business network. Shortly after
the company was started Ibuka was joined by a close
wartime friend, Akio Morita, who initially combined
a part-time post at the Tokyo Institute of Technology
with his time at the company. Unlike Ibuka, Morita
was a member of a leading Japanese Samurai family.
Morita was expected to forge his career in the family
business, which was brewing sake. He had been
trained in business skills from an early age. However,
at university, he had proved himself to be a very
talented electronics engineer. While Ibuka was pas-
sionate about inventing, Morita was a more realistic
businessman who understood finance and market-
ing. The two friends proved to have valuable,
complementary skills.
In Ibuka successfully persuaded Moritas
father to allow Akio to join his business on a full-time
basis. Morita Snr actually invested in the business and
eventually became the companys largest sharehold-
er. The company was formally incorporated as Tokyo
Telecommunications Engineering Company (TTK) in
mated to US$. TTKs next inventions were an elec-
trically heated cushion and a resonating sound gener-
ator (for sending and receiving Morse code) which
offered superior audio facilities to competing
machines. The quality was high, and the American
Occupation Forces were among the early customers.
Although the products were relatively sophisticated
the production facilities were housed in run-down,
leaky premises. TTK also succeeded in obtaining con-
tracts to convert and modernize all the equipment
belonging to the Japanese Broadcasting Network.
Noticeably, there were still no breakthroughs with
products for the theoretically targeted consumer mar-
ket. Ibuka then saw an early American reel-to-reel
tape recorder in one of the offices belonging to the
Occupation Forces.
Tape recorders the first consumer product
Ibuka realized the potential of the machine and pur-
chased the Japanese patent rights immediately. He
was convinced that TTK had the requisite skills to
design and produce a good-quality tape recorder. One
major stumbling block proved to be a shortage of
plastic in Japan, from which TTK could manufacture
the reel-to-reel tapes. Import regulations prohibited
the acquisition of plastic from abroad. TTK tried cello-
phane, rice paper and finally a specially calendered
paper with a smooth surface and which could be coat-
ed with magnetic powder. They overcame the inher-
ent drawbacks in the paper tape by building superior
quality into the circuitry, recording head and amplifi-
cation system. Although it needed both patience and
money TTK became the first company in the world to
manufacture the complete range of tapes and
recorders, including the component parts. Altoge-
ther, this implied different basic technologies.
Their first recorder, weighing lb ( kg), was
introduced into the market in . Several months

passed though before the first unit was actually sold
to the Japanese equivalent of a pub. Realistically,
the device was too heavy, too bulky, too complex and
too expensive. Once they realized why the market
was slow and hesitant, Ibuka and his colleagues
concentrated on reducing both the size and weight,
and sought ways of halving the cost. Their main
competition was from M, which was already a well-
established and successful American corporation.
Ms magnetic tape, branded with the Scotch name,
was a superior product which TTK sought to fran-
chise. M were only willing to grant the franchise if
TTK stopped manufacturing the hardware.
Transistor radios
Ibuka went to America in in search of new
market opportunities for his smaller, cheaper tape
recorder. It was on this visit that he began to realize
the future potential for transistors, an invention
patented by Western Electric of the USA. He
returned home and told his engineers that they were
going to use transistors to build radios radios that
would not need electricity for power and which were
small enough for individuals to carry around easily.
Current portable models were the size of a typical
briefcase, weighed over lb (. kg) and needed the
batteries changed every few hours. Ibuka conceptu-
alized a pocket-sized model and took up the chal-
lenge of developing the technology.
TTK had to license the patent from Western
Electric at a cost of $,. Protracted negotiations
with the Japanese Ministry of International Trade
and Industry (MITI) for the release of this amount of
foreign currency imposed a nine-month delay. The
transistor patent was granted in .
Increasing sales of their lighter, cheaper tape
recorders enabled TTK to invest in a research pro-
gramme for transistors. Their aim was to achieve
satisfactory yields of the high-frequency transistors
which were needed if radios were to be manufac-
tured at a commercial cost. Early transistors were
utilized in such products as hearing aids, which
operated at much lower frequencies. Nevertheless,
TTK were beaten by Texas Instruments in the race to
be first with a portable radio utilizing high-frequen-
The Sony Corporation
1027
cy transistors. However, in August TTK were
also able to display a small portable radio. Its size
was . ( cm). The production
target for the first year was ,, and they actual-
ly achieved .
Ibukas team concentrated on making an even
smaller model, despite critics who argued that any
further reduction in size would have to be at the
expense of sound quality. TTKs greatest challenge
lay in convincing their component suppliers that size
reductions were achievable. TTK formed research
alliances with a number of their suppliers and
offered them technical help and expertise. Existing
components were often straight copies of Western
technology, a typical Japanese strategy at that time.
Perseverance was rewarded in March when
TTK was first to market with a pocket radio. The
radio was marginally bigger than a normal shirt
pocket, and consequently TTK started producing and
marketing shirts with slightly larger pockets!
The company was renamed Sony at around this
time. The new name had been derived from the Latin
sonis, meaning sound. Ibuka and Morita believed the
name to be simple, recognizable and easily pro-
nounced in most languages. The name Sony quickly
became a generic for transistor radios, and Sony
enjoyed an early technology lead of between two
and three years. Later product developments includ-
ed transistorized short-wave and FM receivers.
Consolidation and growth
Sony was growing into a very sound company, diver-
sified into a number of related areas and with mar-
kets around the world as well as in Japan. Its reliance
on the Japanese government (for aid) and banking
system was minimal. Ibuka and Morita were firmly
in control and able to make quick decisions. Rapid
expansion drove Sony to poach senior managers
from other Japanese companies, an unusual practice
in that country, and one which was frowned upon.
But Sony was clearly not a typical Japanese business.
A new director of research was recruited from
MITI, where he had previously worked for over
years. A printing company manager was appointed
 The Sony Corporation
1028
and given a totally free hand to turn around a strug-
gling semiconductor factory. An ex-jet pilot and tal-
ented opera baritone, Norio Ohga, was employed
firstly as a music consultant. After his retirement
from active stage work he became head of the tape
recorder business and some years later he succeeded
Akio Morita as chief executive of the whole Sony
Corporation. It was Ohga who championed Sonys
entry into the music and entertainments industries
in the s. One executive remarked: I never knew
what hidden abilities I had until I came to Sony.
Sonys workforce grew tenfold in the s and
fourfold in the s. In the mid-s Sony
employed , people around the world (see
Exhibit ). The business was controlled through firm
budgeting and production control systems but
within these constraints employees were given con-
siderable freedom and empowerment. Creativity was
encouraged. Workers were provided with homes by
the company, a normal Japanese practice. These
homes, though, were small, prefabricated houses,
whereas most large Japanese companies would
house their workers in dormitories. Also unusually,
Sony employees were given responsibility for their
own residences.
Working practices
Production was organized in small cells, each a spe-
cialized unit with full control over its own work and
with responsibility for monitoring its own output.
Internal co-operation between cells was encouraged
and fostered. The cells formed an interconnected
and interdependent network. Each cell had a second
cell as its main supplier and a third cell as its main
customer. The role of management was to assist the
cells, helping them to solve problems, setting overall
goals and praising superior performances.
New employees, regardless of their background,
education and intended functional role, would
spend several months on a production line. Ibuka
and Morita believed that it was important that all
employees should understand the companys prod-
ucts, working practices and culture. It was also typi-
cal for Sony to switch people between jobs every few
years. Frequently, workers would move from an
engineering to a production role, and vice versa.
Rewards and bonuses were given to groups of work-
ers rather than to individuals.
Employees were encouraged to be innovative in the
interests of the company and not to be afraid to make
mistakes as long as they did not make the same
mistake twice. Young employees were deliberately
given heavy workloads and considerable responsibil-
ity. New managers all had corporate mentors.
Sony motivates executives not with special
compensation systems, but by giving them joy in
achievement, challenge, pride and a sense of
recognition.
Television an important new product
Sony began to use transistors in new consumer
products, introducing the worlds first transistorized
television in , the worlds first transistorized
video tape recorder in , and the worlds first
micro-television in .
In Sony established a subsidiary in the USA,
and Akio Morita moved with his family to New York.
Sonys managers felt that they needed to know the
US market by intuition and not be reliant on pub-
lished statistics. Sony Corporation of America was
subsequently developed into one of USs highest
quality companies, renowned for both its products
and after-sales service.
By the mid-s colour television was becoming
established in the USA. The standard technology,
which had been pioneered by RCA, was known as
the shadow mask system. A triangle of three elec-
tron guns created a grid of colour dots to produce
the colour image. Sony did not want to copy this
widely licensed US invention, and sought to develop
a system based on a line (rather than a triangle) of
electron guns in the television tube. Early trials were
not successful, and not for the first time Sony
appeared to some to be investing in a dream. Morita
commented: If we wait and develop a unique prod-
uct, we may start several years later, but we will be
stronger than all the others in ten years.
After several setbacks, and considerable frustra-
tion, Sonys new Trinitron system was ready in
 The Sony Corporation
1029

. Trinitron was a unique concept, using a single than the VHS format which was developed by Japan
gun and a three striped beam system. Its competitive Victor Corporation (JVC), a subsidiary of Matsushita,
advantage was that the colour reproduction was under a patent agreement with Sony. Sony had invit-
superior to the RCA system. By spring the new ed Matsushita to join them with the Betamax format,
Sony televisions were in the shops, priced competi- but their suggestion had been declined. The early VHS
tively, and within a year Trinitron dominated the tapes offered twice the recording time of Betamax,
small-screen () market in Japan. Success in but Sony stuck with Betamax because of its superior
America, and systematically the rest of the world, reproduction quality. They believed that this advan-
followed almost automatically and inevitably. tage would guarantee success and consumer prefer-
Production of Trinitron colour sets began in America ence. They misjudged the market and their competi-
in and in Britain in . tors. Most Japanese and American consumers pre-
Later, in the s, Sony was the first company to ferred the smaller and cheaper VHS system.
develop a high-definition television standard. This Although relatively slow to take off, the video tape
innovation prompted a defensive competitive reac- recorder reached a penetration level of % of
tion in Europe. The European Commission founded households by the mid-s. Sony gave up on
an industrial consortium to develop a rival standard. Betamax for the domestic market and instead pro-
duced VHS recorders and tapes, but never achieved
Video recorders a substantial market position. In , for example,
Video tape recorders had been in existence since the Sony had a % UK market share for video recorders
mid-s, but they were used primarily by the pro- and a % share of the blank tapes market. Betamax
fessional broadcasters. A number of Japanese com- was always a more popular format in the broadcast-
panies, together with leading American electronics ing sector of the market, where Sony still enjoys an
corporations, produced models. Philips (of The % market share.
Netherlands) dominated the market in Europe. Sony There was a number of lessons for Sony. Not only
made a deliberate decision not to enter the profes- had they failed to understand the needs and prefer-
sional video market. Instead, Ibuka decided that Sony ences of their customers, they had failed to promote
should manufacture less expensive commercial video their system effectively. JVC, in contrast, had been
recorders. Some time later he also decided that Sony willing to share their technology and had entered
should seek to develop videos for use in the home. alliances with owners of software namely the stu-
It was his vision and innovatory zeal that led to dios who owned the rights to feature and television
Sonys early predominance in the home video tape films which could be released on video. These lessons
recorder market, but it was not a lead that they were were instrumental in strategic decisions made by
able to sustain. Sony in the s.
Sonys high-quality commercial system, the
U-Matic format, was launched in . U-Matic The Sony Walkman
machines and tapes were both bigger than the VHS The Walkman is probably Sonys best-known prod-
systems that are commonplace today, but much uct, and its launch in heralded the restoration
smaller than the existing professional systems. of Sonys reputation and innovatory leadership. The
U-Matic machines used a single recording head and Walkman introduced a new dimension to the way
tapes enclosed in cassettes professional machines people listened to the radio and to pre-recorded
normally had four heads and used reel-to-reel tapes. music and changed the lifestyle of a generation.
Because of its high quality, U-Matic survived for a The original Walkman was a compact cassette play-
number of years after smaller systems were available. er with small earphones to enable highly portable
Sony pioneered home video with the Betamax for- listening without annoying or inconveniencing
mat in . Betamax cassettes were also larger other people. Over million sets were sold within
 The Sony Corporation
1030
the first ten years. It is useful when walking and jog-
ging and on trains and aeroplanes. The concept was
later extended to a variety of different models,
including waterproof and sandproof sets, radio
receivers, special versions for children, compact disc
players and, in , video playback systems using Hitachi and Toshiba are all older and larger than
Sonys new mm video cassettes.
The idea for the Walkman had come from Ibuka
and Morita. Morita knew that young people liked to
listen to music constantly, often wanting to play it at
a loud volume, and that their tastes and preferences
were frequently very personalized. He also played
golf fanatically and believed that an individual cas-
sette player would appeal to a whole range of sports-
men and women. His assumptions were correct this
time. The Walkman was successful from the day it
was launched.
Other products and competition
Sony launched its Mavica all-electronic still picture
camera in Japan in . Marketing in America and petitor enjoys wide market dominance, although
Europe followed some years later. Mavica records the
images on small magnetic discs, rather than film,
and they can be viewed on home television screens
instead of using slides or photographs. Hard-copy
printing systems are available for people who also
want a physical photograph.
These systems have so far failed to make major
inroads into the popularity of film cameras, despite
the dramatic success of hand-held video camera-
recorders. These cameras became increasingly com-
pact during the s, making use of -mm video Japanese company. The advertisements all featured
cassettes which can be transferred onto VHS format
for viewing on domestic televisions. This market is
very lucrative but very competitive and increasingly
dynamic, with several major Japanese electronics
companies involved.
Sony launched the first miniaturized camcorder
in June . It weighed just . lb ( g), and it and CDs. At that time Philips had a substantial
was one-quarter the size of existing camcorders.
Within six months both Matsushita and its JVC sub-
sidiary had introduced lighter models. Within a fur-
ther six months there was additional competition
from Canon, Sanyo, Ricoh and Hitachi. Sony intro-
duced two new models in Summer . One was
the lightest then available; the other had superior
technical features.
Japanese competitors such as Matsushita (which
also incorporates Panasonic branded products),
Sony. Although their product ranges are not identical
they are all diversified and active internationally. A
number of these Japanese companies has, for exam-
ple, diversified into consumer white goods (washing
machines, refrigerators, and so on), which Sony has
deliberately ignored. There are, in addition, many
other smaller Japanese competitors. Sony also experi-
ences competition from a variety of US and European
producers, with certain companies successful in par-
ticular markets but perhaps less successful across the
spectrum of the global consumer electronics indus-
try. The major European competitors are AEG, Bosch,
GEC, Philips and Thomson SA, which acquired
Ferguson in the UK from Thorn EMI. Amstrad is a
competitor for certain products only. No single com-
there are market leaders for different products. The
dynamism of the market, with short product lifecy-
cles and constant innovation, means that positions of
leadership may well prove transient. Sony has always
marketed its products creatively around the world,
sometimes appearing more like a home producer
than a Japanese company. Exhibit , which features
examples of the humorous copy used in a number of
radio and television advertisements in the UK, is
included to illustrate that Sony is not a typical
the instantly recognizable voice of John Cleese and
date back to the late s and early s. It has
also been claimed that many Americans actually
believe that Sony is an American company.
In the early s Sony formed an alliance with
Philips to develop and launch compact disc players
shareholding in Polygram, one of the leading
recording companies, but not the controlling inter-
est which it has today. Initially, the record companies
in America and Europe were cautious about releas-
ing their music on the new format; and this hostility

Exhibit 1 Sony radio and television advertisements featuring John Cleese used in the UK in the late
1970s and early 1980s
Good Evening.
Good Evening Sir.
Id like to buy a Sony Trinitron Family Size Colour
Television set please.
Well, this is an off-licence Sir.
I see. Well do you have anything else that would give
me really bright, clear, colourful pictures?
How about a gallon of creme de menthe? Thatd put
you on the way.
But would the pictures be really sharp?
Hmm not really!
And is it reliable?
Well, you dont get the pictures immediately and
theres always the danger your headll fall off.
Oh, I think the Sonyll be better then. Ill try a TV
shop.
Well, why did you come here in the first place?
I wanted to annoy you.
(Shop door bell)
Ring
Good afternoon.
Good afternoon Sir. Can I help you?
Yes, Im looking for a colour television what about
this one?
Ah, the Sony Trinitron 1810.
Now, does it give a nice fuzzy picture and break
down a lot?
No, no, the Trinitron system means a very sharp,
reliable . . .
Oh well, are the colours muddy and nasty?
No Sir, theyre very bright. Its a feature . . .
Its for my wife you see.
Oh doesnt she like television?
Oh yes, but I dont like her.
Ah well, now, this little Ruritanian sets a real
shocker.
The Sony Corporation
1031
Really, really. I still like the look of this Sony Trinitron
you know.
Oh.
Yes, Ill take it.
But I must warn you . . . its not really right for you.
I know, but its all right. Ill smash it up a bit. Do you
sell mallets?
Sony the electronics people have asked me to tell
you that theyve just opened a fish and chip shop
in Regent Street where you can wander in and
play with the fish to your hearts content.
Sorry, sorry, thats quite wrong. I got confused er
its not a fish and chip shop, its a TV, Stereos and
Radio showroom sorry I got a bit muddled
there Im doing an ad for some fish and chip
shops next sorry er.
Sony have a magnificent showroom and not a fish
and chip shop in Reggent Street sorry Regent
Street so if you want to go in and examine and
operate stereo equipment, but not Halibut and
Rock Salmon or anything fishy like that, go to 134
Regent Street. Sorry about the muddle.
Look I am frightfully sorry to bother you but some
awfully nice people called Sony have agreed to
pay me some money if Ill tell you theyve a
terribly nice showroom in Regent Street where
you can just wander in and play with all the Sony
Stereo and TV and Radio equipment and listen to
the quadraphonic demonstration without being
pestered by anyone, just to see if you like
anything, you see.
Its at 134 Regent Street.
There, Ive told you.
Ive told them.
(Cash register)
Thank you.
 The Sony Corporation
1032

had a formative effect on Sonys future diversifica- introduced a successful range of high-powered work-
tion strategies. Sony and Philips still earn royalties stations.
for every CD that is sold. Exhibit provides a summary of Sonys product
Sony also competes in sectors of the global com- range in . Exhibit analyses the breakdown of
puter industry, which again involves several leading Sonys sales by product and geography for the period
Japanese players such as Hitachi and Fujitsu, and to . In the tables the category other prod-
many American and European businesses. The ucts mainly comprises computers and computing
American competitors range from the giant IBM equipment together with Sonys chemicals activities.
through a number of medium-sized businesses to These businesses are essentially suppliers of neces-
several small and very entrepreneurial hardware sary materials and represent vertical integration.
and software companies. Sony has targeted particu-
lar niches and focused carefully. Lean manufacturing
Sony pioneered the . floppy disc, which quickly Sony have seen lean manufacturing as another
proved more robust and popular than its . prede- competitive weapon, and as both a supplement to,
cessor. The disc, launched in , was far more suc- and partial replacement for, continuous innovation
cessful for Sony than its early word-processor, for and new product developments. The improvements
which it was designed. This floppy has become the are still being sought, and are still happening, but for
industry standard, and in the s Sony retains a number of products the speed of change has
% of the world market. Until the early s slowed down.
Sony manufactured semi-conductors for incorpora- Lean manufacturing was necessary because the
tion in its own consumer products, and then, realizing consumer electronics industry has become increas-
the potential for sharing its technology, sold them ingly mature. At the same time it is this maturity,
externally. Sony has been a pioneer and market leader and the ability to slow down the rate at which new
for several specialized components and has also products and major product improvements are

Exhibit 2 The Sony corporation. 1996 product range

Percentage
breakdown
of sales in 1996

15% Video equipment A leading manufacturer for broadcast and professional use.
Domestic VCRs, digital camcorders, 8 mm camcorders, video
disc players, laserdisc players, still image video cameras and
tapes. Video tape
20% Audio equipment CD players, hi-fi and mini systems, radio cassette players and
radios, personal stereos (Walkman series). DAT systems and
car stereos. Audio tape
17% Television sets Including HD TB and giant monitors
29% Other products Semiconductors. Electronic components. Computers and
associated equipment (including games machines, PCs,
laptops, disc drives and floppy discs). Cellular telephones
Music and entertainment Sony Music Entertainment CD and cassette software
19%
{ Filmed entertainment Columbia Pictures
Tri-Star Pictures
 The Sony Corporation
1033

Exhibit 3 The Sony Corporation

Analysis of turnover by sector

(Financial years)
Product sales (%) 1973 1977 1981

Video equipment 6 14 27
Audio equipment* 12 12 7
Televisions 41 33 23
Tape recorders and radio* 27 20 17
Other products 14 21 26
*From 1982 these categories were consolidated.

(Financial years)
Product sales (%) 1982 1987 1988 1989 1990 1991

Video equipment 43 31 29 27 26 25
Audio equipment 23 31 31 26 25 24
Televisions 23 21 20 16 15 16
Other products 11 17 17 15 15 15
Music and filmed entertainment 3 16 19 20

(Financial years)
Product sales (%) 1992 1993 1994 1995 1996

Video equipment 23 24 18 18 15
Audio equipment 25 24 23 23 20
Televisions 16 16 17 18 17
Other products 18 20 22 23 29
Music and filmed entertainment 18 19 20 18 19

Analysis of turnover by geography (selected years only)

1973 1977 1981 1987 1991

Japan 53 39 29 34 26
USA 26 30 27 27 29
Europe 11 15 20 24 28
Rest of world 10 16 24 15 17

launched, that has facilitated lean manufacturing.
Lean manufacturing systems imply some inflexibili-
ty, and are therefore preferable when products are
not being constantly changed and updated.
Lean manufacturing describes manufacturing
systems which are designed to reduce lead times and
costs. They are likely to require investment in infor-
mation technology but not necessarily the most
advanced manufacturing technology. Lean implies
simpler systems, often based on just-in-time princi-
ples, and greater reliance on a network of inter-
dependent suppliers. It is these arrangements which
 The Sony Corporation
1034

reduce the flexibility. In , for example, Sony
reduced the lead-time for manufacturing a video
recorder by two-thirds.
Typically parts are ordered firmly just hours
before they are needed. This is only practical if suppli-
ers are integrated into Sonys value chain and if prod-
uct cycles are relatively long. Although relatively
inflexible for substantive product changes, such sys-
tems can be made very flexible for responding to
changing consumer demand patterns. Face-lifts, such
as new housings, which are still changed frequently,
can be accommodated without undue difficulty.
equipment) and Thailand (semi-conductors and
magnetic tape) have more than one plant and a
more diverse range of products.
Sony now has plants in America and in all major
European and Far Eastern countries. Altogether,
there are over subsidiaries, and over % of
Sonys sales are outside Japan. In comparison, the
overseas sales percentages for three of Sonys main
Japanese rivals are: Matsushita, %; Toshiba, %;
and Hitachi, %.
The following sections chart how the innovative,
successful and influential Sony began to lose its
way.

Overseas subsidiaries
Sony developed an extensive international business
for three main reasons:
. Sony lacked the domestic sales and distribution
networks of its leading Japanese competitors and
therefore looked to establish both production
plants and sales networks around the world and
close to its important markets
. Sony wanted to be an innovatory pioneer for
consumer electronics products and realized early
in its history that it would be important to enjoy
close proximity to its markets in order to under-
stand and satisfy their disparate needs
. The strength of the Japanese yen. When Sony
was first incorporated the exchange rate was
over yen to the US dollar; in mid- the
rate was yen to $. When Sony built its UK
plant in South Wales in . exchanged
for yen. In the rate was in the order of
yen to ..
Sonys first production plant outside Japan was built
in Taiwan in . In Sony began manufactur-
ing in San Diego, California. Europe followed in
with a plant in Spain. Sony began producing televi-
sions at Bridgend in south Wales in , and this
remains its only British manufacturing plant. The
extent of Sonys operations in each European coun-
try tends to be focused. For example, audio equip-
ment is manufactured in France, magnetic tape in
Italy and CD equipment in Austria. Countries such
as Malaysia (colour televisions, audio and video
Diversification into music and
entertainments
Sonys diversification into the American music and
entertainments industries was based on the follow-
ing premise. To guarantee, or at least consolidate,
the future potential for the permanently changing
and improving consumer electronics hardware and
gadgetry, Sony must be confident that the major
entertainment companies would release their films
and music in suitable formats. Sony therefore chose
to integrate vertically and, by acquisition, secure a
substantial presence in the entertainment software
business.
In January Sony paid US$. billion to buy
CBS Records. This was followed in November
with the purchase of Columbia Pictures (Columbia
and Tri-Star studios) from Coca-Cola. See Exhibit
for a summary of the previous acquisition of Colum-
bia by Coca-Cola. This acquisition cost $. billion
but Sony took on an additional $. billion in debts.
At the time, this constituted the largest ever overseas
take-over by a Japanese company. CBS became Sony
Music and Columbia was renamed Sony Pictures
Entertainment. There was some cross-synergy
potential with the increasingly important pop music
videos and the release of film music albums.
Table shows how the hardwaresoftware link-
ages were to be created.
Sony was followed into America by Matsushita,
which acquired MCA, owners of a recording busi-
ness and Universal Studios, for $. billion. Toshiba
 The Sony Corporation
1035

Exhibit 4 Coca-Colas acquisition of Columbia Pictures

In March 1982 the managements of the Coca-Cola Company and Columbia Pictures Industries Inc. agreed that
Columbia should become a subsidiary of Coca-Cola. The news was greeted with mixed feelings and the New
York Times summarized many commentators opinions: ... may be a mistake. To make a conglomerate of a
company that has succeeded because it has stayed with its speciality is a dubious strategy. At the time the
Coca-Cola drink held a 25% share of the American soft drinks market, and it represented some 70% of the
corporations sales. The company had developed additional products for existing and related markets, namely
Tab (sugar-free Coke, 1963) and Fanta (fizzy orange juice, 1960); and it manufactured and distributed tea,
coffee, wine and natural fruit juices. Products were sold in 135 countries around the world, including China and
the USSR.
Coca-Cola had been looking for possible acquisitions in the food, health care and entertainment industries to
enable it to grow more quickly than inflation. Any acquisition must not involve high technology (no experience)
or require heavy capital investment in plant. While looking for suitable companies Coca-Cola concluded that
health care was becoming too high tech and that food companies did not offer a profit margin as good as its
existing business. Columbia proved attractive because it was involved in home entertainments (cable TV and
video), growth of which should be good for the Coca-Cola drink. In addition it had a reputation for successful
films (Kramer versus Kramer, The China Syndrome and Close Encounters in the recent past), and it had an
extensive film library of past productions which were undervalued in the balance sheet given their home movie
potential.
Coca-Cola argued that potential synergy existed because both companies were experienced in mass
consumer markets and worldwide operations, and both appealed significantly to young people. But were these
sufficient grounds for synergy?
In 1986 David Puttnam, British producer of Chariots of Fire and The Killing Fields, joined Columbia, but left
the following year. He departed two months after Coca-Cola signed an agreement with Tri-Star Pictures,
another film and TV company in which they had built a 33% stake, whereby the entertainment interests of
both organizations were formed into a separate independent company, 80% owned by Coca-Cola and managed
by Tri-Star executives.
Commentators contended that one reason behind this move was the reality that Wall Street was increasingly
favouring pure rather than conglomerate businesses. In truth, Columbia had always been profitable through the
1980s, but the key success factors for soft drinks and motion pictures were significantly different, and synergy
proved elusive. Soft drinks, whatever their brand name, have certain similarities, and the emphasis must be
upon effective marketing to build and maintain a market image. Films and often very different from each other.
By mid-1989 the film company was called Columbia Pictures Entertainment, and Coca-Cola held 49% of the
equity. When Sony of Japan offered to buy Columbia Pictures, Coca-Cola was said to be demanding a high
price for its shares.

bought a stake in Time-Warner. Some critics argue
that the Japanese have been mugged and paid over
the odds. Others have commented that Sony has been
allowed to buy a significant part of Americas soul.
Matsushita did not keep MCA for very long and re-
sold it to Seagram, the Canadian drinks manufac-
turer. Matsushita tried unsuccessfully to run MCA
from Japan; it was less willing than Sony has been to
devolve significant power to foreign managers. The
Toshiba/Time-Warner link has proved lucrative for
the development of digital video technology.
Sonys gamble concerns the future and its ability
to derive the potential synergy it claims is there.
There is certainly no universal agreement that the
 The Sony Corporation
1036

Table 1 The synergy between Sonys hardware and new software products
Film and recording studios Cameras, broadcasting and recording equipment all provided by Sony
Sony also manufacture all the blank recording tape and films required
Film and music production Sony would determine the films and music which would be produced and,
critically, control the release formats
Sony also gained control over 12 television stations and the Columbia libraries,
including 300 film titles and 20,000 recorded television shows. These TV shows
alone provide Sony with an annual income of $100 million
Consumer hardware At the time Sony manufactured: high-definition televisions; video recorders; the
range of Walkman products covering audio cassettes, CDs and videos (8 mm
format); CD and hi-fi equipment
Consumer software Sony manufacture the film, video tape, compact discs and cassettes upon which the
software will be released
There are, quite simply, several outlets for a single piece of recorded material
Additional opportunities for Sony lie in computer games based upon their movies
and designed for high-definition television and the Sony PlayStation; and in the
future in digital video discs which are seen as the replacement for video tape.

synergy is anything other than imaginary. The
hardware and software businesses are, quite simply,
different. It is a question of technology versus cre-
ativity; and the key success factors are not the same.
Some analysts, who disagree with the change of
direction, have argued that the money would have
been better invested in information technology.
The inherent risks
There were three areas of risk for Sony.
The management risk concerned Sonys ability to
manage an American acquisition. Sony was innova-
tory but managed by engineers. CBS and Columbia
are people businesses. Rather than try and manage
the acquisitions from Tokyo, Sony decided early on
to decentralize the business and recruit experienced
Americans to control the companies. The entertain-
ments businesses were controlled wholly from
Hollywood until . Although Akio Moritas
brother was chairman of Sony America, American-
born Mickey Schulhof was the chief executive until
he resigned in . When he left, Schulhof had
worked for Sony for years; unusually for a for-
eigner, he had been appointed to the main Sony
board in . Producers Peter Guber and Jon
Peters, who had recently made the box-office suc-
cesses Batman and Rain Man, were brought in by
Schulhof at a cost to Sony of $ million.
As it has become an increasingly global corpora-
tion, Sony has recruited more European and
American managers to support the Japanese leader-
ship. The integration of the different cultures is not
perceived to be a problem. Sonys culture is hetero-
geneous and is strengthened by a continuous injec-
tion of new people and ideas.
In reality, the Japanese have accepted that the
Americans must be given a free hand with the
entertainments businesses, and that they must be
given sufficient capital. Although it cannot have
been easy for Sony to delegate such authority and
responsibility, they have nevertheless done it. As
a consequence the hardware and software business-
es have so far been run as separate, independent
businesses.
The second risk was the political risk. Would there
be a hostile reaction from the US public? Sony was
well established and well known in the USA, thanks
to the past efforts of Morita, and consequently this
has not proved to be a major concern.
Third was the significant and still unresolved
strategic risk. Did Sony need to go into the software
business? Did it pay too high a price, and could it

recoup its investment? Is the synergy potential real
or imagined? Could Sony succeed where Coca-Cola
had failed?
Peter Guber has commented that Sony in Tokyo
did not use the expression synergy, but nevertheless
expected that Sony Entertainments would find ways
of marrying the technology resources of the elec-
tronics businesses with entertainments. In this
respect a new film should ideally be accompanied by
a soundtrack produced by Sony Music. Cinemas will
use Sonys digital sound equipment, which is said to
be superior to Dolby systems. Depending on the film
Sony will manufacture related video games based on
the movies characters.
Two main arguments against the synergy between
hardware and software have been put forward. First,
Sony must still make its hardware freely available to
all software producers. Secondly, the decision by
retailers to stock particular software formats, and
the decision of consumers to buy, can only be influ-
enced and not controlled by Sony.
The outcome so far
Filmed entertainment
Sony acquired a film studio which had previously
been very successful with such films as Lawrence of
Arabia and Bridge Over the River Kwai. Sony also inher-
ited Hook, directed by Stephen Spielberg at a cost of
$ million. It recouped $ million at the box budget feature films, less attention was placed on
office. Sony allowed Columbia an annual film budget
of $ million, which was above average for the
industry and brought immediate criticisms of over-
spending.
In December Sony concluded an exclusive
long-term deal with Barbara Streisand to cover her
music and film work. Streisand already recorded on
CBS. This followed a similar deal with Michael
Jackson in , mainly covering music.
Sony have brought out a number of major box
office (and consequentially, financial) successes,
including Bugsy (Warren Beatty), Prince of Tides
(Barbara Streisand), My Girl, A League of their Own
(Madonna), Little Women, Legends of the Fall,
Philadelphia (Tom Hanks), Jumanji (Robin Williams),
The American President (Michael Douglas) and Sense
The Sony Corporation
1037
and Sensibility (Emma Thompson). There has been one
major disaster and box office failure: Last Action Hero
with Arnold Schwarzenegger. Sonys films accounted
for % of US cinema box office receipts in ,
achieving an even higher proportion for a short
period of time, but by they had fallen below
%. At this time Sony was earning an average rev-
enue of $ million per film; Paramount Studios was
averaging $ million. Nevertheless, high-budget
films continued to be made, leading to accusations
that they were driving up the already high production
costs. These comments caused Jon Peters to resign.
His departure was followed by that of Peter Guber
in October . One month later Sony wrote
billion yen (. billion) off the value of Sony
Pictures Entertainment, commenting: the business
has not provided adequate returns. Additional
funding will be needed to attain acceptable levels of
profitability. It has been estimated that Sony had at
this stage already invested $. billion on top of the
$. billion it paid to acquire Columbia Pictures.
A Morgan Stanley analyst in London commented
in :
If there is a moral to this story, it is that Japanese
electronics groups do not make good parents for
Hollywood movie studios.
Television films began to take priority over high-
finding elusive synergies and the relative success of
the movie studios improved in . Nevertheless,
Schulhof left Sony at the end of the year and he was
not replaced. His number two would continue with
the same responsibilities but now report to the new
strategic leaders. Nobuyuki Idei and Norio Ohga in
Japan (the succession of Norio Ohga and Nobuyuki
Idei to the senior positions in Sony is described later
in the case). Wall Street interpreted this to mean
that Sony would be willing to sell at the right price.
Music
The music business was generally more stable and
profitable than the movie studios; Sonys leading
artists, in particular Michael Bolton, Mariah Carey,
Oasis and Bruce Springsteen, continued to deliver
 The Sony Corporation
1038
successful albums. However, Michael Jacksons pop-
ularity fell back when he was accused of being
involved with a minor, and Sony lost George Michael
when he demanded to be released from his contract.
Product disappointments: the
mini-disc and DCC
These two new formats for recorded music were both
launched towards the end of . By this time vinyl
records were almost forgotten and, in certain coun-
tries including the UK, CDs were outselling audio
cassettes.
Mini-disc is a small (.) compact disc which
sells for roughly the same price as a conventional
CD. It was invented by Sony, as were the new mini-
disc players. Mini-discs are not compatible with
existing CD equipment. There is no loss of quality,
there is random access (instant track selection) and
blank discs can be bought for home recording. These
blanks cost % of the pre-recorded disc price. They
are ideal for Walkman-sized players.
Digital compact cassettes (DCC) were developed
jointly by Philips and Matsushita. Philips designed
the hardware, Matsushita the software. DCC offers
CD-quality sound reproduction (a marked improve-
ment on standard audio cassettes) at the same price
as a standard CD. DCCs contain a spare track for
recording additional data, such as biographical
details of the artists, which can be viewed on
both special LCD and normal TV screens. The new
DCC players will also play standard cassettes, as the
two formats are the same size, but DCCs cannot be
played on existing audio equipment. Philips and
Matsushita saw this as a major advantage as the
average person owns some audio cassettes. Blanks
are available. The major disadvantage was the exist-
ing drawback of standard cassettes random access
and track selection is not possible. In addition, the
fear of piracy was greater for DCCs than for mini-disc.
Nevertheless, the six leading record companies
worldwide (including Sony Music) all agreed to
release music on DCC. Initially only Sony and EMI
Music were willing to support mini-disc, with the
others looking to protect their existing CD sales for
the time-being. It seemed unlikely that they would
not support mini-disc if consumers were enthusias-
tic about the new format. After all, mini-disc players
were cheaper than DCC players, and Sony was able
to offer a combined CD/mini-disc player in .
Initially consumers were reluctant to commit
themselves to either product until there were clear
indications of leadership. Could both formats suc-
ceed, or must there be a winner? Technical superior-
ity alone would not guarantee success. In the event,
both have failed to really take off. Some ,
mini-disc players have been sold, but most of these
are in Japan; it continues as a niche market product.
DCC was less successful.
Changes in strategic leadership
Globalization was always a personal crusade of Akio
Morita.* In he was over seventy and retained
only a peripheral involvement from his home in
Hawaii, but he still exerted influence. Morita retired
as chief executive officer in (he was succeeded
by Norio Ohga, who had been chief operating officer
since ) but stayed active with the title of chair-
man. Partially paralysed by a stroke in , he
relinquished this last position in . Morita spoke
perfect English and was highly Westernized. He was
the public face of Sony, especially in America. He
believed that Sony should be a good and ethical cor-
porate citizen everywhere it operates, and he, like
Ibuka, believed that the pursuit of profit is not the
principal objective. Sonys plants have always been
designed to fit into their local communities. In
Alsace, for example, Sony inherited a vineyard with
a piece of land that they bought. They continued to
make wine, labelled Chateau Sony!
Morita frequently incorporated a strong element
of intuition in his decision making. Ibuka was the
same. Their executive successor, Norio Ohga, had a
more considered style. According to Sony, however,
his accession would have no effect on the basic cul-
ture. Sony would continue to operate rapidly and
efficiently whilst placing strong emphasis on the
long-term development of people and technology.
*Akio Morita died in October .

Morita believed that Sonys commitment to inno-
vation was deeply embedded in the culture of the
organization worldwide. He argued that there were
three essential features:
Creativity in Sony is committed to high
technology standards for the technical
engineering within its products
Creativity in This technology must be
product planning harnessed to design useful,
attractive and user-friendly
products
Creativity in The organization must commit
marketing resources to ensure that
customers are persuaded to
buy Sonys products.
Interestingly, Sonys Betamax video was character-
ized by the first two of these but Sony failed to per-
suade the market that it was superior to the VHS for-
mat. The Walkman was a supremely successful
example of effective product planning and market-
ing, but it was still harnessing old technology.
Ohga was years old in ; he had undergone a industries. For Sony this represents a philosophical
coronary bypass operation three years earlier. In
he elected to step back and nominated Nobuyuki Idei
to succeed him. Idei was currently the chief operating
officer but, unlike Ibuka, Morita and Ohga, his back-
ground was not in engineering. He was essentially a
marketing person who had worked for Sony for over
years. Typically he is perceived to be un-Japanese
and he speaks fluent English and French. Idei was
determined to implement change in the once-mighty
Sony whose performance had recently been deterio-
rating. In the year ended March Sony made a
pre-tax loss for the first time in its history.
He stated that his main role would be to turn
Sony into a company which can identify with a new
generation of consumer electronics users the digi-
tal dream kids. There was to be an increased
research and development emphasis on software,
networks and information technology and new
products relevant for the digital age.
The Financial Times ( July ) commented Matsushita/JVC supported the rival alliance. Initi-
that Sony, a young maverick company up to the
s, had become the sprawling, bureaucratic
organization from which its founders sought to dif-
The Sony Corporation
1039
fer. Idei was also determined to continue with the
structural changes he had begun in .
New products in the mid-1990s
Digital video
Similar to the way in which the CD replaced the vinyl
record, digital video is predicted to replace the video
cassette players and tapes which prospered in the
s. Digital video discs (DVD) and players (DVP)
play digitized images onto a screen and are seen as an
ideal format for computer-linked interactive video, the
multimedia dream. As was the case with video,
authorship of the technical standard is seen as critical
as it will bring lifelong royalties, marketing advantag-
es, power and influence. For digital video, the hard-
ware/software challenge demands that the hardware
and data formats meet the needs of the so-called
information superhighway, including music and film
makers, and the personal computer, telecommunica-
tions, cable television and satellite broadcasting
shift. The last major Sony breakthroughs, the
Walkman and the compact disc, were driven largely
by the needs and preferences of customers; digital
video will be producer driven because of the complex
array of interested parties.
Sony chose to develop digital video with its CD
partner, Philips. By it was clear that Sony-
Philips was in competition with an alliance between
Toshiba and Time-Warner. Sonys DVD was single
sided and could store over hours of video. Tosh-
ibas super-density disc was double-sided and offered
greater storage capacity, equivalent to seven and a
half normal CDs. Sony was convinced that its costs
and prices would be lower and that these issues
would outweigh the capacity issue. However, by
early Sony and Philips were largely isolated,
supported in the main by Mitsumi, Ricoh and Teac,
who all manufacture floppy disc drives. Hitachi,
Pioneer, Mitsubishi, Thomson and, most critically,
ally Sony and Philips were determined to carry on
with their own DVD, but in September they accept-
ed the inevitable and adopted the rival format.
 The Sony Corporation
1040
The PlayStation
Sonys PlayStation is one of a new generation of
-bit computer games systems, which are far
faster and more graphic than their predecessors, the
-bit systems. Sony, which was already active in
games software, entered the hardware market
in September with a high-quality but com-
petitively priced product and immediately took
market share away from the two industry leaders,
Sega and Nintendo. Sonys strategy was to price
low to seize share and use this to boost sales of its
more profitable and highly innovative games. The
Sony PlayStation achieved sales of . million units
in its first year, two million of these in trend-setting
Japan.
The Sony PlayStation in explored further in the
next case study.
Personal computers
The case described earlier how Sony became a major
player in the computer floppy disc industry; it also
manufactured several other computer components.
In November Idei announced a new strategic
alliance with Intel to develop a new range of per-
sonal computers and associated software. Intel, the
world leader for semiconductor products, would
provide the main circuit boards for a computer
which would offer exceptionally high-quality sound
and graphics, ideal for multimedia applications.
Idei saw this as an essential development for Sony
to exploit digital video. The PC industry is still grow-
ing and, although it is very crowded and competi-
tive, there are real opportunities for truly distinctive
new products. The Sony PCs were to be launched
first in the discerning American market, with Japan
and Europe following on later.
Structural changes
In the s Sonys international strategy was one
of global localization. Sony aimed to be a global
company presented locally, and this involved devolv-
ing authority away from Tokyo and expanding man-
ufacturing and R&D around the world. The typical
large Japanese company had established both pro-
duction and distribution networks around the world
but had sought to remain centralized, with power
firmly located in Japan.
Sony, however, divided the world into four
Europe, America, Asia and Japan and created four
organizations which should be virtually self-suffi-
cient, and ultimately locally financed, independent
businesses. In this respect Sony was seeking to
become Japans first truly global company. The
plan involved the systematic transfer abroad of all
the functions required to perform the entire life
cycle of its products, namely design and develop-
ment, engineering, production, marketing and
sales. Sony already owned its own chains of retail
outlets for consumer products in selected major
markets. Sony was looking to devolve investment
decisions, R&D, product planning and marketing.
Changes can be implemented quicker when every-
thing is on the spot.
Sony created seven business groups in
(this was later extended to ) to co-ordinate
the production and marketing of particular
products around the world. With the exception of
entertainments activities, the co-ordinating power
remained in Tokyo. Structurally, Sony companies
in the UK, France, Spain, etc., theoretically reported
to Sony Europe, based in Cologne, and with a Swiss
chairman.
With the exception of entertainment the
structure was designed to work as follows. Strategic
decisions were all to be made centrally in Tokyo;
operational decisions, concerning such issues as
pricing and production, would be devolved to
regional managers. R&D at the basic development
level remained centralized in Tokyo; local centres
would concentrate on adaptations for local needs.
Staff would be transferred between countries.
In theory, then, only corporate strategic issues
should be referred back to Tokyo. These included
requests for capital for investment to build a new
factory and permission to alter the structure. In
practice, managers bypassed the regional layers and
contacted Tokyo for advice and guidance on opera-
tional matters. The actual practice and culture
lagged behind the theory, and Sony became overbur-

dened by administration, rather than an organiza-
tion that was quickly responsive. It had drifted from
a paragon of creativity and entrepreneurial spirit to
a bloated bureaucracy.
When the strategic leaders decided that a different
form of decentralization was required to deal
with the global/local issues, they acted quickly and
decisively.
In spring Sony, with the exclusion of the be treated cautiously. The published figures will
American entertainments businesses, was divided
up into eight separate divisions; these were not of
equal size. They were to be called companies and
they would enjoy considerable autonomy and
power. Each would have its own president and would
be responsible for design, manufacturing and mar-
keting. The three largest companies were: consumer
audiovisual products; components; and recording
media and energy (batteries). The other five were:
broadcast products (equipment); business and
industrial systems (work stations); telecommunica-
tions (including mobile phones); mobile electronics
(for cars); and semiconductors.
The changes proved to be successful but Sony
decided to modify the structure further in spring
to reflect its changing strategic emphasis. Eight parts and products held up satisfactorily in the glob-
companies became ten. A new one was formed to
cover personal computers and information technol-
ogy. The large audiovisual company was split into
three. Telecommunications and mobile electronics
were combined into a single company. Four new
R&D laboratories would support information tech-
nology and semiconductors. In addition, Sony creat-
ed a new executive board to oversee corporate strat-
egy, to integrate the companies effectively, and to
foster learning and sharing.
Financial outcomes
Exhibits and provide summaries of key informa-
tion from Sonys profit and loss accounts ( to prosperity?
) and balance sheets ( to ). The data
show that Sony has never been hugely profitable
The Sony Corporation
1041
(some, but not all, of its major Japanese rivals have
been more profitable), and that until the s it has
experienced steady growth. The impact of the
American acquisitions in the late s is clearly
illustrated in the and figures. Sonys
once-high R&D expenditure was reduced to approx-
imately %, which is actually typical for Japanese
electronics companies. The figures should, however,
incorporate adjustments for profits and losses on
currency fluctuations and therefore not reflect pure
trading successes. The figures are in Japanese yen
and, given the continual revaluations of the
exchange value of the yen, were the accounts to be
restated in the currencies of the countries in which
Sony traded, the companys growth would have
been more marked. A proportion of the stated long-
term debt is in the form of Japanese bonds carrying
a % rate of interest.
The first major setback was in the trad-
ing year when the parent company in Japan report-
edly lost money and relied upon Sonys internation-
al businesses. Considerable income falls were experi-
enced in chemicals and magnetic tapes; electronic
al recession. Sonys music and entertainments busi-
nesses also performed relatively well in that year.
Sales of consumer electronics reflected the effect of
the recession in the results, when rising
debt forced a reduction in capital expenditures. Sales
began to pick up in but profits slumped after
the film studio write-offs in the USA. New strategies
and products brought about a restoration in sales
revenue for but profits remained below
those of earlier years.
Have Sonys fortunes been turned around with
the strategic and structural changes introduced by
the new strategic leader? How much more change
will be required to sustain the renewed growth and
Sony Corporation http://www.world.sony.com
 1042

Exhibit 5
Sony Corporation profit and loss summary, 19721996 (m)
12 months to 31.10. 12 months 17 months Year ended 31.3.
1973 1978 1982 to 31.10.86 to 31.3.88 1989 1990 1991 1992 1993 1994 1995 1996
The Sony Corporation

Turnover 314,000 534,900 1,114,000 1,325,000 1,431,000 2,145,329 2,879,856 3,616,517 3,822,000 3,879,000 3,610,000 3,827,000 4,593,000
Profit before tax 49,159 52,378 85,542 76,405 73,497 165,516 227,429 264,591 197,177 92,561 102,162 (220,900) 138,200
Profit after
interest and tax 24,503 22,991 39,671 35,368 33,536 70,340 100,453 112,193 120,121 36,260 15,298 (293,000) N/A
Expenditure on R&D N/A N/A N/A N/A 180,000 142,000 165,000 206,000 N/A
Average number
of employees 20,600 27,112 43,126 47,600 60,500 78,900 95,600 112,900 N/A N/A N/A 130,000 138,000

Exhibit 6
Sony Corporation balance sheet summary 19851995 (m)
12 months 17 months Year ended 31.3.
To 31.10.1986 To 31.3.1988 1989 1990 1991 1992 1993 1994 1995

Total fixed assets and investments 476,014 789,856 931,000 2,168,000 2,369,000 2,589,000 2,411,00 2,246,000 2,077,000
Total current assets 974,130 1,077,000 1,434,000 2,202,000 2,234,000 2,358,000 2,110,00 2,024,000 2,147,000
Total current liabilities 628,294 944,271 1,119,000 1,996,000 2,105,000 2,052,000 1,734,000 1,408,000 1,609,000
Net assets 821,850 922,585 1,246,000 2,374,000 2,498,000 2,895,000 2,787,000 2,862,000 2,615,000
Equity capital and reserves 606,392 650,346 911,800 1,430,000 1,476,000 1,537,000 1,428,000 1,330,000 1,008,000
Long-term loans 144,000 196,000 221,000 646,000 695,000 885,000 880,000 984,000 906,000
Long-term provisions 71,458 76,239 113,200 298,000 327,000 473,000 479,000 548,000 701,000
Total capital employed 821,850 922,585 1,246,000 2,374,000 2,498,000 2,895,000 2,787,000 2,862,000 2,615,000
 The Sony Corporation
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Questions
. Describe and evaluate the early strategies which made Sony a successful and innovative company.
Can the recent changes to the corporate strategy and structure be justified strategically?

. How would you evaluate Sonys track record as an innovative company?

. Provide a strategic audit of Sony in the early s.

How do you think Sony will now develop during the mid/late s?
. How does Sony compare and contrast with the typical Japanese corporation?